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Documenting Operational Hedge Fund Processes

If you are starting a hedge fund or currently running a hedge fund then this might be one of the most valuable videos that you watch this year.   In the following video, I cover process documentation, why it is important, who should be doing it and I will give an example of how it can work.

Video Transcript/SummaryThe strategies and tips provided within this video module include:

  1. Write down all of your high-level processes on a list.
  2. Use a separate piece of paper or MS Word document to document the steps for each of the processes.  
  3. Analyze these steps and processes to see whether there are areas for improvement or unnecessary steps that should be removed to streamline your hedge fund business.
  4. This will help you figure out whether your team and your resources are being used to their full potential.
  5. “If you can’t document your system then you don’t know what you are doing.”

Transcript of Documenting Operational Hedge Fund Processes

Hello, this is Richard Wilson and right now we’re going to talk about process documentation, why it’s important, who should be doing it and just give a quick example of how it can work. And if you are starting a hedge fund or if you are running a hedge fund and you’re looking to improve its operations then this might be one of the most valuable videos that you watch this year.

Basically, process documentation allows you to see your business from a top-down view everything that’s it’s doing with more clarity probably than you ever have before. If you’re never done it this will provide a lot of value to your firm. The first thing you need to do is write down every important process that your firm undertakes, maybe you have an investment research process, maybe you have your general investment process, maybe you have a hiring process, how you hire more people to your team, it is an operational processes, some auditing processes, a compliance reporting process. Write down all of those major high-level processes. You should have at least 10 to 15 and probably not more than 30 and write down all those processes in a list.

Next, what you want to do is get a separate piece of paper for each process and you can use process documentation software if you’d like. You can use mind-mapping software if you’d like. But you can do these within Microsoft Word. It doesn’t take any special technology or software purchases to complete these tasks. If you open a Word document now, take those, say 20 business processes you have and document steps, 1 through 10 or 1 through 20 of what is done with each step of that process along the way.

Now, often times — I’ve done these for businesses that range from a million dollars of revenue or $500,000 of revenue to multibillion-dollar corporations and documenting these processes can be very challenging because lots of people operate in silos and sometimes even the CEO of a hedge fund or a company might not know how all the processes flow through the organization. So it’s very likely you’ll have to interview other people on your team or service providers to figure out exactly what all the steps are from soup to nuts, how things get done within your hedge fund.

What is important to do as an important process? So what you need to do is document all 20 or so of those business processes step-by-step so you can look at them and see if there’s any obvious areas of inefficiency improvement, maybe those steps, it can be taken out, maybe you’ve been meaning to improve your transparency if you’re a hedge fund or the institutional quality of it and some of these process if documented the right way can actually be shown to investors, to show them how you operate in a professional consistent manner.

It’s also important to have these in place so you can really analyze whether your team skills and abilities are actually being put to use in the best areas. I spoke with a hedge fund recently who documented all of their business processes and they ended up outsourcing 16 of the 18 business processes that they ran. They figured out that only two of them really pertain to their core competencies and their competitive advantage.

So integrate a story to show, if you’re starting a hedge fund or looking to improve your operational improvements this is something where you don’t need to go hire a consultant right now and spend $300 an hour paying them to document your processes, you should have your processes documented and this is somebody at a mid-level or a high-level within the organization can do. It does not take that much time to document them and it can give you some huge benefits that could lasts for a remainder that your firm or fund is in business.

So there’s one quote, I think it’s by Drucker that says “If you can’t document your system, you don’t know what you’re doing.” And then there’s another quote, I think it’s by Deming that says “If you can’t document what you’re doing, then you can’t improve it.” So it’s a great opportunity to both improve and make sure you know exactly what you’re doing and what you’re not doing by documenting all of your business processes and it’s something that I don’t see often done, so I think if you do this and you do it right and take away some lessons from it, it can be somewhat of a — you know one of those 10 things that gives your hedge fund a competitive advantage over others. So thank you for your time and we’ll see you again soon.



I recently spoke with a hedge fund manager who documented operational processes and ended up outsourcing 16 of the 18 processes that they ran.  This shows how documenting operational hedge fund processes can help save your hedge fund money and make your fund more efficient.  

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